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National natural rates of interest and the single monetary policy in the Euro Area

Author

Listed:
  • S. Fries
  • J.-S. Mésonnier
  • S. Mouabbi
  • J.-P. Renne

Abstract

Using a semi-structural approach, we jointly estimate time-varying national natural real rates of interest for the largest four economies of the Euro area over 1999-2016 and discuss the associated challenges for the single monetary policy. We find evidence of an increased dispersion of real equilibrium rates across major Euro area economies during the Euro area sovereign debt crisis. This dispersion translated into significantly diverging national real interest rate gaps, a synthetic metrics of the perceived monetary policy stance, between core and Southern countries. Real interest rate gaps have nonetheless converged towards zero in all four economies as of 2014, suggesting that it took the acceleration of unconventional policies since mid-2013 to eventually restore the conditions for a really common monetary policy in the Euro area.

Suggested Citation

  • S. Fries & J.-S. Mésonnier & S. Mouabbi & J.-P. Renne, 2016. "National natural rates of interest and the single monetary policy in the Euro Area," Working papers 611, Banque de France.
    • Handle: RePEc:bfr:banfra:611
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    More about this item

    Keywords

    Euro area countries; natural rate of interest; common monetary policy; fragmentation;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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